Tuesday, January 02, 2007

Daimler-Chrysler Settles With Its D & O Carriers

According to January 2, 2007 news reports (here and here), DaimlerChrysler AG has reached a settlement with its D & O insurers in connection with the $300 million settlement of the securities class action lawsuit that had been filed against the company.

The securities class action lawsuit was filed in May 2002, relating to the 1998 merger of Daimler Benz and Chrysler that formed the company. The securities lawsuit had alleged that the defendants issued statements assuring the markets that the transaction would be a “merger of equals,” when defendants intended to turn Chrysler into a division of the merged company. The lawsuit cited an interview with former DaimlerChrysler Chairman Jurgen Schrempp in which he said that the transaction had been referred to as a merger of equals rather than as a takeover “for psychological reasons” only. In August 2003, the Company agreed to settle the securities lawsuit for $300 million (or about 240 million euros at the then applicable exchange rate). Further information regarding the securities litigation settlement can be found here.

The company sought to have its 200 milllion euros directors’ and officers’ liability insurance program cover the bulk of the settlement. According to news reports, only AIG agreed to contribute its limit (25 million euros). The eight remaining insurers on the D & O program declined to pay, apparently arguing that Schrempp’s comments showed that the misrepresentations were intentional, which led to litigation between the Company and the remaining insurers. (The remaining insurers were led by ACE and are each named in the news reports linked above.)

The lawsuit between the Company and the remaining D & O carriers was scheduled to go to trial on January 9, 2007 (here, in German), but according to the January 2 news reports linked above, the parties reached a settlement pursuant to which the eight carriers reportedly agreed to pay 168 million euros out of the remaining 175 million euros in limits.

According to Reuters (here), the head of ACE’s European Operations said that he “hoped the settlement would spark a discussion in Germany about whether Directors’ and Officers’ liability insurance coverage was too broad.”

The settlement of the securities class action lawsuits was unrelated to the separate but similar individual lawsuit brought by Tracinda Corporation (owned by Kirk Kirkorian) in Delaware federal court. Tracinda claimed that defendants’ statements that the transaction was a “merger of equals” had deprived it of a merger premium for its Chrysler shares. The Tracinda lawsuit went to a bench trial between December 2003 and February 2004, and in April 2005, the court entered judgment in the defendants' favor, rejecting Tracinda's arguments. Tracinda’s appeal to the Third Circuit remains pending. (Details regarding the Tracinda action can be found here and here.)

In 2004, a separate action was also filed in Delaware federal court on behalf of current of former DaimlerChrysler shareholders who are neither citizens or residents of the United States and who acquired their DaimlerChrysler shares through a foreign stock exchange. The district court dismissed the complaint in January 2006. The plaintiffs' appeal to the Third Circuit remains pending.

In addition, in 1999, former shareholders of Daimler Benz instituted a valuation proceeding against the merged company in Stuttgart district courts. The shareholders claimed that the exchange ratio used in the merger did not properly value their shares. An expert commissioned by the court issued a December 2005 report calculating a range of alternative values for the shares, and in August 2006, the court, in reliance on the expert’s report, ruled that the company must pay the shareholders additional compensation which amounted in the aggregate to about 232 million euros. The company continues to contend that the original ratio used was appropriate. Details regarding the Stuttgart valuation action can be found in DaimlerChrysler’s annual report, here (refer to pages 182 through 186).

Special thanks to the new With Vigor and Zeal blog (here) for the links to the news reports and other sources regarding the D & O insurance settlement.

An interesting Tuck School of Business at Dartmouth case study about the DaimlerChrysler merger, including an examination of the reasons why the merger failed, may be found here.

An excerpt from Taken for a Ride: How Daimler-Benz Drove Off With Chrysler, the book length examination of the merger, can be found here. The excerpt contains the following memorable description of Schrempp's departure from the first meeting between the managers of the two companies:

Schrempp and the group bellowed song after song until the wee hours. The German co-chairman led one final chorus of ''Bye, Bye, Miss American Pie.'' Then, with a wild gleam in his eye, Schrempp grabbed his ever-present assistant, Lydia Deininger, picked her up, and threw her over his shoulder. The room exploded in laughter as Schrempp snatched a bottle of champagne in his free hand, raised it in the air, and yelled out with a grin: ''See you later, boys!'' Then he carried her off, not to be seen for the rest of the night.

More Last Words on Skilling's Sentencing: We here at The D & O Diary would have thought that the last word on Jeffrey Skilling's sentencing had already been written, but a January 1, 2007 post on The New Yorker's website (here) by Malcolm Gladwell (author of Blink and The Tipping Point) sets out a dramatic retelling of the sentencing hearing, including Skilling's lawyer's unsuccessful attempt to have the sentence reduced 10 months so that Skilling could serve his sentence at a lower security facility. An interesting short commentary on the New Yorker column appears on Dealbreaker.com, here. The D & O Diary's prior comments on the Skilling sentencing can be found here.

The Art of Conversation: The current issue of The Economist magazine includes an examination on the dying art of conversation. The article (here, subscription required) warrants reading in full, but here is a selected sample:
The more modern the manual of conversation, the more concrete its advice is likely to be. Ms Shepherd offers seven quick ways to tell if you are boring your listeners, which include: “Never speak uninterrupted for more than four minutes at a time” and “If you are the only person who still has a plate full of food, stop talking.” Her checklist of things best not said to the parent of a newborn baby should be memorised for future use. It comprises: “What's wrong with his nose?” “Should he be that colour?” “Isn't he awfully small?” “Shouldn't you be breast-feeding?” “Did you want a boy?” “Is he a good baby?” “He looks like Churchill!/She looks like ET!” “It's really cute!”

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